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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. For one good - constrained by prices and income - a consumer stops consuming a good when the price paid for the next unit is equal to the marginal benefit received






2. When firms focus their resources on production of goods for which they have comparative advantage






3. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity






4. Models where firms are competitive rivals seeking to gain at the expense of their rivals






5. The difference between total revenue and total explicit and implicit costs






6. Measures the value of what the next unit of a resource (e.g. - labor) brings to the firm. MRPL = MR x MPL. In a perfectly competitive product market - MRPL = P x MPL. In a monopoly product market - MR < P so MRPm < MRPc.






7. A good for which higher income decreases demand






8. Costs that do not vary with changes in short-run output. They must be paid even when output is zero.






9. AVC = TVC/Q






10. The output where ATC is minimized and economic profit is zero






11. A market structure characterized by a few small firms producing a differentiated product with easy entry into the market






12. Ed = 1






13. Consumer income - prices of substitute and complementary goods - consumer tastes and preferences - consumer speculation - and number of buyers in the market all influence demand






14. Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient






15. The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand






16. Pm > MR = MC - which is not allocatively efficient and dead weight loss exists. Pm > ATC - which is not productively efficient. Profit > 0 so consumer surplus is transferred to the monopolist as profit






17. Additional costs to society not captured by the market supply curve from the production of a good - result in a price that is too low and a market quantity that is too high. Resources are overallocated to the production of this good






18. Total product divided by labor employed. APL = TPL/L






19. Entry of new firms shifts the cost curves for all firms downward






20. Measures the cost the firm incurs from using an additional unit of input. In a perfectly competitive labor market - MRC = Wage. In a monopsony labor market - the MRC > Wage






21. Models where firms agree to mutually improve their situation






22. A firm that has market power in the factor market (a wage-setter)






23. The lost net benefit to society caused by a movement away from the competitive market equilibrium






24. Ei > 1






25. A legal maximum price above which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent shortage






26. Occurs when there is no more incentive for firms to enter or exit. P=MR=MC=ATC and profit = 0






27. The additional cost incurred from the consumption of the next unit of a good or a service






28. Ed = 0 - no response to price change






29. A very diverse market structure characterized by a small number of interdependent large firms - producing a standardized or differentiated product in a market with a barrier to entry






30. The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter






31. In the case of a public good - some members of the community know that they can consume the public good while others provide for it. This results in a lack of private funding and forces the government to provide it






32. The imbalance between limited productive resources and unlimited human wants






33. A period of time too short to change the size of the plant - but many other - more variable resources can be changed to meet demand






34. Substitutes - cost as percentage of income - and time to adjust to price changes all influence price elasticity






35. A period of time long enough to alter the plant size. New firms can enter the industry and existing firms can liquidate and exit






36. The rate paid on the last dollar earned. This is found by taking the ratio of the change in taxes divided by the change in income






37. Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.






38. The difference between total revenue and total explicit costs






39. Ex -y = (%dQd good X) / (%d Price Y). If Ex -y > 0 - goods X and Y are substitutes. If Ex -y < 0 - goods X and Y are complementary






40. Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources






41. Exists when the production of a good imposes disutility upon third parties not directly involved in the consumption or production of the good






42. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good






43. The practice of selling essentially the same good to different groups of consumers at different prices






44. The difference between your willingness to pay and the price you actually pay. It is the area below the demand curve and above the price






45. Two goods are consumer substitutes if they provide essentially the same utility to consumers






46. Ei = (%dQd good X)/(%d Income)






47. Ed = (%dQd)/(%dP). Ignore negative sign






48. Exists if a producer can produce a good at lower opportunity cost than all other producers






49. Entry of new firms shifts the cost curves for all firms upward






50. A measure of industry market power. Sum the market share of the four largest firms and a ratio above 40% is a good indicator of oligopoly